Over the last three decades, Zimbabwe’s working populations pumped a lot of money into pensions and social security believing they were insuring against old-age poverty, but woke up to be told some serial robber called inflation had broken into the safe of their life savings and vanished with the benefits.
Meaning, they had made no “real” savings, losing every contribution made prior to dollarisation.
It’s a technical excuse that pension and mutual funds always give to absolve themselves of any wrongdoing, the motive being to run away from an apology due to the millions they robbed.
By nature, pensions are an annuity set up to smooth out consumption over the life of a career by transferring income from the period of active employment to retirement, a process managed by an investment company known as a pension fund, which pools individual contributions into a portfolio of managed investments.
The fate of local contributors makes Zimbabwe’s pensions case a corporate fraud akin to the Bernard Madoff scandal, which also fleeced investors’ savings in more or less the same way.
For US investors, at least, Madoff’s said “I’m sorry” before incarceration.
Zimbabwe’s pension fraud hit the market in February last year when pension and life funds started converting policies to United States dollars following the economy’s switch to multiple currencies the same month.
The process, for the most part, arbitrarily reduced the balance on accounts to values less than $100 regardless of how long each policy had run.
This has hurt confidence in the life annuity system and raises questions about the safety of pension investments, underscoring the urgent need to develop regulations and institutions to protect contributors.
“It’s true the conversion of pensions from Zimbabwe dollars to United States dollars is controversial,” Theodora Moyo, the managing director of Alexander Forbes Risk Services Zimbabwe, says. “There are many questions about the accuracy of the conversions. Life and pension companies have shot themselves in the leg because this has undermined confidence in pensions.”
Financial reports confirm the industry has actually sunk under the multiple currency dispensation as accounts added generally lag behind surrenders.
The erosion of Zimbabwe dollar pensions means that all annuities before dollarisation were merely an inverted welfare system that literally transferred purchasing power from contributors to the funds, end of story.
What is woeful about the whole corporate scandal is that pension funds often like to hide behind prescribed assets in pushing their inflation argument.
This is dishonest.
Firstly, the funds’ exposure to inflation through prescribed assets was only 35%, meaning fund managers had direct control over 65% of the contributions, which were enough to hedge investments and attain a growth.
Secondly, as hyperinflation savaged the economy, every business from retailers and banks to manufacturers, jostled to hedge themselves in properties and other asset-based portfolio positions.
It’s hard to believe a portfolio mix dominated and leveraged by properties could lose the sinew to preserve value, let alone add some leaven to it over time, unless the pension funds would like to claim that a sub-prime crisis that escaped everyone’s attention surreptitiously hit the industry and turned it over.
Unless they would like contributors to believe they didn’t join the asset bubble and chose to link someone’s retirement income and benefits to crashing equities and market money markets, which would mean they are not experts at their job.
The outrage of working populations is simply that the various equity positions that mutual funds took at different periods and the properties they developed from the contributions are still standing today, yet pensioners’ contributions are said to have dissipated to “nothing.
Before hyperinflation broke out, mutual and pension funds had a clearly defined long-term view on properties and played the biggest role in their development, channelling the largest part of funds under their management to properties, balancing this with a small portfolio of equity, money market and other investments.
Today, all pension funds and mutuals own buildings, shopping malls and office parks and hold sizeable equity interests in nearly all locally listed entities.